Q1 21/22

Aug 9, 2021

Good evening, everyone, and welcome to Neogen Chemicals Q1 FY twenty two earnings conference call for analysts and investors. Joining us on the call today are senior members of the management team, including doctor Harin Khanani, managing director Mr. Anurag Surana, Director and Mr. Ketan Vyas, Chief Financial Officer. We will commence the call with opening thoughts from the management team, post which we will open the forum for Q and A session, where the management will be glad to respond to any queries that you may have. At this point, I would like to add that some of the statements made or discussed on the conference call today may be forward looking in nature. The actual results may vary from these forward looking statements. A disclaimer to this effect is available in Neogen Chemicals Q1 FY 'twenty two earnings presentation, which has been shared earlier. I would now like to invite Doctor. Harin Ghanani to comment by sharing his thoughts on the performance and strategic progress made by the company. Thank you, and over to you, sir. Thank you, Nishit. Good evening, and a warm welcome to everyone on Neogen Chemicals Q1 FY twenty twenty two earnings conference call. We have shared our result documents earlier. I hope you got a chance to glance through them. I will briefly share my views on the performance of the company and the trajectory going forward. In the first quarter of fiscal year twenty twenty one, as the country was getting back to normalcy post the first wave of COVID-nineteen pandemic, the intense second wave hit us in April and May. And as you know, this time, the surge was greater with significant rise in caseloads in a short span of time. Moreover, we witnessed challenges around higher logistic costs as well as some disruption in supply chain. In this backdrop, I believe our teams displayed tremendous agility to deliver resilient performance during the first quarter of FY twenty twenty one as we boldly navigated through these emerging threats. We reported 11% growth in revenues with 20% improvement in profit after tax. To further break down our revenues, growth in organic chemical was at 3% to INR68 crore in Q1 FY twenty twenty two, while revenue from inorganic chemicals came in at INR 17 crore, higher by 52% year on year. Let me reiterate that the demand trend continues to be favorable across key end user industries, and we are using this lever to further strengthen our position in the market. Utilization levels across at our Mahape and Baroda plant remain at elevated levels, and we are making all efforts to enhance our contribution from the value added product portfolio. This positive momentum is further supported by healthy recovery in economic activity across the country as well as steep decline in COVID caseloads. I will now share some updates on the organic chemicals facility at Zahej SEZ. Despite significant challenges and setbacks on the ground during Q1 FY 2022, the trial commercial production has commenced and continued. We have now received approval from several international customers, including two CSM customers who have approved Dahed SSZ organic MPP for delivery starting Q2 and more customer approvals are expected over the year, once we complete the trial production of some of the pharma products and submit data for their approval during the course of the year. Further, we expect 75% of our Phase two reactor will come online sooner than planned by end of Q2, early Q3 and will further contribute to revenue partly in Q3 and more significantly in Q4. Lithium prices worldwide have also normalized as compared to historically low levels in the second half of last financial year. Based on this development, the revenue guidance of INR450 crore for FY 2022 remains unchanged. Once all reactors and support systems are fully commissioned in this year, this world class state of the art facility will propel our performance as we will undertake assignments of complex multistage chemistries at this site. To conclude, let me share that the outlook is looking exciting for us. Our customers understand and appreciate the company's execution progress and focused product capabilities resulting in Neogen growing its market share and expanding its presence in both established as well as value added product lines. We will continue to demonstrate profitable performance in the long term through relentless focus on leveraging our knowledge in complex chemistries. Subsequent expansions will be modular, thereby limiting impact on our cash flows, and we will keep exploring novel opportunities to steer our momentum and maintain our leadership position in select chemistries. Now I would request our CFO, Mr. Ketan Vyas to share his perspectives on the financial performance for Q1 FY 'twenty two. Ketan, over to you. Thank you, Doctor. Honey. Good evening, everyone, and welcome on the call. I will briefly touch upon the key financial highlights of the company for the first quarter of fiscal year twenty twenty one. All comparisons are on a year on year basis and stand alone in nature. In Q1 FY twenty twenty two, our revenues increased by 11% to INR 84.6 crore, which came in despite several challenges on ground. As explained by Doctor. Rin, with respect to second wave of COVID-nineteen pandemic and other disruptions related to logistics and supply chain, scaling up of the new village inorganic facility that was commenced in Q4 of FY twenty twenty as the support of revenue momentum. EBITDA improved by 3% to INR 15.6 crore, translating to EBITDA margin of 18.5%, an expansion of basis points. Higher utilization levels at our plants helped maintain overall cost and drive operating leverage. Margins expanded also due to favorable product mix during the quarter. Profit after tax stood at INR 7.4 crores, higher by 20%, which was supported by overall stable performance across business verticals. In Q1 FY twenty twenty two, our domestic and export mix stood at 5146%, respectively. That concludes my opening remarks, and I would now request the moderator to open the forum for questions from participants. Thank you. Thank you very much. We will now begin the question and answer session. Remove Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, you may press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Manish Chen from Money Life Advisory Services. Please go ahead. Manish Jen from Money Life Advisory Services, your line is in the top mode. Please go ahead with your question. We would request you to please unmute yourself from your mobile and go ahead with your question. Yes. Sorry. Thanks for the opportunity. My first question is what is the number of customers we are working with under contract manufacturing presently? So customers with whom we've already worked so far where we have supplied them or supplying them products, that's more close to around ten, ten odd customers. And then there are additional, I would say, eight to 10 customers with whom we are discussing several projects. Okay. You. So and the second question is what is the share of advanced intermediates with respect to the overall revenue in this quarter? And looking forward, how we are going to improve our share? So I think as we have shared earlier, the advanced intermediates usually contribute roughly around 20% to 3025% to 30% range. And going forward, by FY 2024, when we have full utilization of the Phase one and Phase two capacity, we expect this percentage to increase to 40%. So that's the target we will set ourselves. Okay. And that's great from my side. Thanks. Thank you. The next question is from the line of Swarnath Mukherjee from EagleWise. Please go ahead. Yes. Thank you. Hi, Harin, sir. Good afternoon. Hope all comes at your end. Hi, Swarnath here. Everybody is good here. Thank you for asking. Great, sir. So a few questions from my side. First of all, in terms of if we speak in terms of volumes that you have done for this quarter, how is it looking vis a vis last quarter and also Q1 FY 'twenty one? So when we compare with regard to Q1 FY 'twenty one, if we were basically, Q1 FY 'twenty one was the quarter in which we had lockdown. At the same time, we also had a overhang of Q4 FY 'twenty. So some of the sales which we couldn't complete of Q4 FY 'twenty had kind of overlap to Q1 FY 'twenty one. And I think the so we had more or less kind of covered that gap. And if you remember, Q1 FY twenty twenty one was already better as compared to Q1 FY twenty twenty in spite of the lockdown situation. The segment which was significantly affected in that was basically the inorganic segment, the lithium segment, which was going to engineering industry. So in this quarter, we did not have the same challenges. I mean, even though there was a COVID situation, but there was not as strict a lockdown as we had in Q1 FY twenty twenty. So therefore, you can see that the lithium demand this year was slightly higher, and that's why you see a big jump because it was mainly because of the lower base in the last Q1 FY twenty twenty one when there was a strong COVID impact. So basically, that strong COVID impact was not there in the lithium segment. And when it comes to pharma and agro, that was more or less in line with our previous quarters and even either Q4 or Q1, so more or less in the line. Slight differential here was that as compared to especially as compared to Q1 FY 'twenty one was that we had exports, which was slightly higher, which was basically contributed by the two contracts, the long term contracts, which we already signed. So that is the additional revenue which we had as opposed to our regular traditional customers. And because of that, the export revenue also was slightly higher. Right, sir. So the reason why I asked this question was, I think in your presentation, have also mentioned that the product mix has undergone a change and share of value added products are going up. Now in the organic front, it is generally has been flattish over the last four, five quarters barring Q4. So if we now look at it from the frame of reference of Q4 FY 'twenty one, the slight dip that has happened, has that been in, I mean, to, you know, any kind of falling volumes because of the COVID circumstances this quarter? Or any realizations have gone down? And how do we look at it from the perspective of also the mix of value added products? Because in my if I understand it correctly, then a higher value added product would have a higher realization. So if you could throw some light on that. Yes. So I think if you are comparing between Q4 and Q1 so last Q4 and this Q1, I think the only differential was that let's see, it was basically like the impact which we had on our production capacity in April and May. So there was disruption, I mean, not as strong as last time, but there was some disruptions, and that led to a slight reduction in what we could produce. Also, overall, in general, we've always seen that in Q4 so Q3 and Q4, our European demand is always for the pharma segment is always higher because they go into this in July and August. They have this summer break in Europe. So they always want to build up inventory. And therefore, our exports to Europe in pharma in Q3, Q4 are usually higher. And we see that demand also from our API customers who are basically serving Europe. So therefore, these are like just a traditional factor where we always say that our Q1 is slightly weaker as compared to Q4, but nothing very strong directionally which will change or alter anything. Okay. Alright. Also, sir, in terms of your inventory, particularly finished goods side, was there anything, you know, that has been held up because of the, you know, shipping crisis that is going on that has not been able to sold been sold and will probably shift to the next quarter, I mean, to Q2? So I think there was some impact in that, but I think the major contributor in terms of inventory, what you are seeing is, you know, the hedge now starting to build up inventory to support the sales, it wants. So as you mentioned, in the hedge already, you know, commercial product productions, trials, then you make some quantity send it to customers for approval. So all those activities have already started. So the major contributor for the changes inventory is the direct production initiation that we have done. Okay. Alright. Now, sir, in terms of your geographical mix, so with the hedge, I guess we should be seeing the export in export share basically going So right now, we are like 55% domestic, 45% export, some kind of I mean, this kind of range over the last few quarters. So do we see now export going up significantly over the next few quarters as the hedge ramps up? So over a few years, yes. Some of the business which will immediately be filled in the hedge would be, of course, some of the new contracts also will contribute, and some also will be molecules which historically we were making maybe in Mahape or Karakadi. Those customer approved Dahesh site. And then from the hedge site, we are supplying some of these products. But, yes, over the next two to three years, we expect the export contribution to increase as, you know, more and more new customers get added at the hedge site. Right. Any color on what that, you know, mix change would eventually affect your tax rate? Oh, I think I would let, you know, Ketan answer that. We had done some simulations what the tax rate will go up to. So, Ketan, would you like to answer that? Yeah. I think the effective for this year, we look at the end of the year. We formulate approximately the tax rate could come down by two or 3% overall. So maybe closer to around 25. Closer to around 25, we look look at the rate, basically. And historically and I think previous simulation, we have seen that it can go down up to 20%. Yes. 20%, have seen that simulation, but that we take it for the 23% or 26 Okay. So just to clarify, if we take FY 'twenty two as a whole, then we'll see for the whole year a 2% to 3% reduction compared to FY 'twenty one. Is that correct? Understand? Okay. Okay. That's very helpful. How are we positioned in terms of debt at the end of this quarter? Debt is in line with what we have formulated. We have a lot of the figures that just to just confirmation, our debt stays about $1.30 long term debt stays about $1.30 crores, and that's what we that's what we look at currently. Alright. Okay. Okay. Got it. And in terms of so, Harin, sir, in terms of the customer approvals, one question that I had was you mentioned two CSM customers have approved. So are those amongst the long term contracts? And whether we should then, from Q2 onwards, see revenue for those long term contracts strickening? So so the two long term contracts we have is one is a CSM, and another is non CSM. Right? So the CSM long term CSM customer, yes, he's he has already approved this item. It was actually right from the beginning once that contract was confirmed. The hedge site was designed specifically. I mean, one part of the hedge was specifically designed for that. So, yes, the revenue from that will start coming in from q two. And another is our historical customer with whom we have relatively decent volumes. So they've also agreed to buy the product from Dahed. So even we are expecting in Q2 also initial trial production from Dahed, which they will accept. And then maybe in Q3 or Q4, there will be more volumes for these customers. And then some of our own bromine derivative molecule customers also have already accepted supply from Dahej and have some of them have also placed the Pure. So these also will contribute in our Q2. And we are also working so some of the customer require us to prepare the final product, submit them the data on equivalency. And once they see this data, then in future, they will give us but they conditionally agreed to buy from the hedge. But once we give them the satisfactory data, then some of some more customers will ship to the hedge. Great. Got it. That's very helpful. Sir, one last question, if I may squeeze in. And this is a little bit, you know, big picture kind of thing that I wanted to take your view on. So we are seeing that, you know, several companies, particularly ones who are operating in the manufacturing of agro agro pharma intermediate space or specialty chemical intermediate space, they are everybody is building up competencies in multiple chemistries. Yeah. And that includes halogenation as well as other other ones like, say, nitration, hydrogenation, amino acids. So I I think going forward in three, four years of time, we'll see several of the major players having capabilities in all all these chemistries or multiple of these chemistries. Maybe some of them might also have their capability in bromination. You will also have capabilities in other halogens or other chemistries. Yes. So then how do you see this competitive scenario, you know, change over a point of time where right now each of you are basically having one private chemistry and then incrementally customers are looking for additional reactions based on the base product and giving you or giving the final product or one or two step upstream from the final product you are sending to the customers. How is this going to evolve maybe five years down the line with everybody having a larger overlap in the chemistry competencies? Yes. So Saurabh, I agree. And, you know, we've also shared this in previous calls that one of the expectations of majority of the customers is that they want to do as much So they want to basically try to do as much steps in one single player so that they don't have to keep moving materials from state, like, you know, have 10 vendors for that. And especially when we are doing CSN, so even the existing molecules where we have a long term contract, that is a seven stage reaction to seven stage reaction where we are doing multiple chemistries. So over a period of time, yes, you know, we all will have to do certain chemistries. But there will be so one is, I think, five years down the line, it will be depending on, number one, you know, who can do a particular chemistry well. We'll still be a criteria where, let's say, you want to do a molecule which has a very challenging or very challenging or nitration is the most key step. So which is a key step that will be and who has expertise or a bigger expertise in that. You know? So that is one criteria. And the second thing will be, you know, who will execute the projects well. So it will be, you know, if okay. If no key chemistry is required and chemistry is being equal, and you're equal capabilities of multiple players, the customer is gonna make a choice based on who is delivering to them on time, who's delivering, or who is able to innovate further. So those and you know the experience of the customer has with working with you historically. So those are the things which I guess would differentiate. I don't know, mister Surana. Would you like to add to this? Yeah. What I would like to say, you know, I always maintain that there is nothing like a reverse chemistry and other chemistries cannot be done. So if you see already, you know, many companies like Neogen, they also do bromination. Where Neogen differentiates itself is that Neogen does a very large variety of bromination. Neogen has a very big strength in sourcing of bromine in entering into long term contracts for bromine in bromine recovery and recycling of bromine and stuff like that. Similarly, you know, companies like SRF and Naveen, they have strength in chlorine chemistry. Now, you know, in school or college or IIT, nobody teaches you bromination or fluorination or fluorination separately. You are taught synthetic organic chemistry. So, you know, any chemist which Neogen or for that matter, any of the companies when they employ a r and d chemist or a r and d manager or a vice president of r and d, he knows all the chemistries. So all these companies are already doing it. It's not that they will do in the future all chemistries or multiple chemistries. They are already doing all chemistries. But in one or two chemistries, if they have some additional, you know, strong points, they like to showcase that as a matter of strategy, you know, which also Neogen does. So I hope that answers your question. Yes. Yes. Yes. That that has been very helpful. So that's all from my side. All the best to the New Zealand team. Thank you so much. Thank you. Thank you, Saurabh. Thank you. The next question is from the line of Saurabh from Amtech. Please go ahead. Yeah. Hi. Thank you for the opportunity. So first, on the employee cost, so there has been a sharp increase in the cost. So is there any one off component? Or we should expect this going ahead? Yes. Thank you for the question. So though I mean, especially when you compare with Q1, the increase is more sharp. And mostly because over last year, we have added a lot of team members for better management. So this is a reflection of that. As a percentage, we hope that, you know, once the hedge starts contributing as a percentage of revenue, it will improve slightly. But also, there will be more employees of the hedge, which will also get added. So, yes, there this is there is no specific one off which has increased this. This is more a trend. But, yes, as a percentage, it should improve once but it will be higher as compared to last year. Okay. So in export, is there any orders in hand which was not delivered in q one and there will be no default of q two because of logistic issue or something? Yes. There were a couple of orders, but not very large. Okay. And sir, like, because of this logistic and supply chain issue, are you witnessing better demand on the domestic side and better realization that you're fetching on the domestic side? So we've not yet seen because generally, we feel these pharma companies have a good inventory. So the domestic major customers are pharma. And the second is engineering. So when it comes to pharma, we've not seen like a better realization because of challenges in logistical constraints for them. So there are no sudden orders that we want this at any cost kind of a situation because of the inventories which pharma companies are carrying. Sir, and if you can provide the utilization levels for the organic and inorganic segment for this quarter? So organic products continue to run at about more than 80% in my Mahape and Karakati unit. And Dahesh, we've not yet started to like kind of calculating percentage because the plant is stabilizing and currently, all the trial commercial productions are ongoing, etcetera. When it comes to inorganic, see, roughly, we say we have a capacity of around INR 25 crores per quarter. So at INR 17 crores, we are, let's say, at around 60%, sixty five % kind of utilization levels in inorganic. Okay. And sir, how should we look at the Hill plant ramp up? Like, I will start in Q2, so whether it will be like in the last month of this quarter? And how the ramp up will happen over this full year? So as I mentioned in my opening remarks, we are expecting that like in this quarter, we should have the Phase one capacity more or less working. And then by end of Q2 or early Q3, at least 75% of Phase two reactors also are likely to come online. So I would say that between Q2, Q3 and Q4, you will progressively see additional revenues kind of coming up, where at least by Q4, we hope 75% of the I mean, the Q1 will be fully utilizable, and 75% of Phase two also should be utilizable. So Q4 should be the best quarter from capacity point of view. Of course, this still being a new site, my Mahape and Karakidi, even though normal standard capacity utilization levels are 80%, run above 80 like, go as high as sometimes 85% or 90% also, whereas the hedge will take some time. So next year and the year after, let's say, we will be kind of hitting those kind of numbers. So overall, when we have kind of targeted INR $4.50 odd crores, our expectation is at least like our bare minimum expectation is to at least cross INR 100 crores in Q2 and then further ramp up in Q3 and Q4 beyond that. Okay. And so my last question on the gross margin, EBITDA margin. So from last two quarters, we have seen a gross margin improvement and while EBITDA margin has improved marginally compared to what we have seen in gross margin because of the value added products addition that you mentioned last quarter. So how should we look at in terms of gross margin going on? Is this 45% kind of gross margin still sustainable going ahead? So that's something once kind of like our product mix stabilizes, we'll have a better answer. But the way it currently looks, at least in this year, we are expecting in the range of so 40% to 45%. I mean we used to be between 38% to 42% historically. But with this new product with longer processing times and that change those changes in the product mix, we currently instead of 38% to 42%, the range which I'm currently looking at is, let's say, 42% plus minus 2%. So 40 before, it was 40% plusminus 2%. Now it is more like 42% plusminus 2%. But again, the processing costs are also higher. So we'll see. Let's let us stabilize a bit because we are making a very big dramatic change in this year. Then I'll be able to give you a more better clarity going forward. Okay. And sir, just one bit on the working capital. So is there any no material change compared to the last quarter or similar to the last quarter? Yeah. Similar, except as I explained earlier, the inventories are a bit higher because, you know, we are now preparing for the head side. So, like, you know, some of the raw materials, some of whatever is in process is all out there. Okay. Okay. Thank you for your answers. Yeah. Thank you. Thank you. The next question is from the line of Manish Kuge from HDFC Securities. Please go ahead. Yeah. Good evening, sir. This is from HDFC. Good evening, Yeah. Sir, you always guided us that you are targeting top line of about $6.50 to 6 70 5 crore by FY twenty four. And out of that, you are expecting that 20% business should come from custom synthesis. That's your target. That means about 120 crore of top line will be coming from the custom synthesis. Correct, sir? Yes. Sir, just to clarify. See, that means when you say custom synthesis, does that mean that the business generated on the technology and the process developed by Neogen Chemical? Is my understanding correct? No. So when we say CSM business, we basically mean or at least we classify as a CSM business where we have a one on one exclusive relationship for a product for that customer, specifically for a geography. So that is what we mean as a custom synthesis business. Now in this, there are various cases. There are many cases where the customer gives me just a name. He he he has a name, and he says, this is what I want you to make, but it's a patented molecule, so you make it only for me. So it can be just that. Then sometimes they have made it few grams or few kgs in lab, and this is this is what I've done. Use this as a starting point and, you know, make the final molecule. I mean, scale up the molecule, develop the technology at the commercial scale, and then you supply to me over a few years. And we also have some customers who say, you know, I've been making this for last ten years, fifteen years, but I want to free up my capacity. So I even have a plant level data. Can you make this exclusively for me? So, you know, we can get technology anywhere from just the name to actual plant manufacturing technology. So the level of technology that we get and the level that we need to develop can change from, you know, 10% to 90%. But, yeah, when we are doing it specifically for one customer, we call it a CSM business. Okay. So, sir, then the two contracts, the long term contracts I'm talking about, you already signed, and you already started dispatching products also. So does this long term contract renew will come under this CSM business? So one of them is part of the CSM business, and another is our own product business. Okay. So in that case, then you you said that about these two contracts that each contract will give you a revenue for about 3 to 50 crore on a lower side, what I view, conservative business, the side. So still you are going with this kind of a 20% margin or $1.20 crore of margin contribution from CSM business. But don't you think it is conservative or guidance you are giving particularly for the custom synthesis business? Because already you have one contract in pocket with a 50 crore of revenue contribution on lower side. Yes. It may go up to 80 crore per annum. Yeah. So I'll be very happy if I'm through and conservative on this. But, you know, basically, a lot of this also dependent on the rate side, which is happening. You know, again, if you remember, I mean, from the time we gave that guidance, we had, like, COVID phase one, COVID phase two, no international travel, like, you know, so we've kind of gone through all of that. So, yes, we can still say that because, look, even before we signed this contract, we already had a CSM business of about, you know, 10% of INR 300 crores, about INR $20.30 crores we had. Then we are saying INR 30 crores to 50 crores. So we are somewhere between INR 60 crores to 80 crores already. Now depending on like what new business once I get it, I'm quite confident to reach at least INR 120 crores over next two years. Especially once the Dahe site starts, we can arrange more customer visits or at least have a video shown to the customer or shown to the customer over video and get those approvals. And then we can see exactly whether it remains 20% or it becomes higher. Okay. Okay. And sir, just one last question. Some molecules which you are, what are selling to this contract manufacture through contract manufacture, are these n minus two kind of molecules, or is it they are just n minus six, n minus seven kind of molecules? They range from n minus four, n minus five to n minus two. Okay. Okay. Thanks. Thanks a lot, sir. That's all from Thanks. Thank you. Thank you. The next question is from the line of Pat Adia from BNK Securities. Please go ahead. Yeah. Thank you for taking my question, sir. So firstly, on the gross margin side, you are one of the best margins that you have lowered in past couple of quarters. Wanted to understand any so basically, we have seen that lithium prices have been rising significantly and going sharply. So any any benefit of the inventory gain that we had from the past low cost medium on these gross margins? Firstly, on that side. Yeah. So that's one of the contributors specifically in this quarter. But, like, you know, I think more the trend is because of the change in the product mix. Okay. And any benefit of what? Can you quantify the benefit from the lithium inventory gains in the in this particular quarter? Not very significant. But, yes, there was some benefit which we had. Okay. And on this secondly, on the new capacity, once it has come up already and once it's ramped up The person you are speaking with has put Hello? Yes. Yeah. So, basically, once a new capacity which has come up and once it gets stabilized, we want to understand the way forward, you tap or even new customer acquisitions or or new business areas that you intend to tap or something which you have not been able to do or not have done before. So wanted to understand what areas would you like to tap, or how would you go ahead with the customer acquisition? So And then your capacity in that specifically related to that. So I think, you know, in some of our calls, historically, what we have said that so far, you know, we have worked with few innovator customers. We feel we were waiting for this plan, which was right from scratch, designed from us, and we had no constraints so we could implement all the changes that we wanted to. So we feel once this is done, we can more aggressively and more confidently go to, you know, more wider range of innovator customers. One being, you know, if they say, show me the capacity, we can show the capacity. Then second is, you know, if they want environmental clearance, so at least for next five years, we have three to four sorry. Another two and a half to three MPPs, which we can add in the head for which we already have an environmental clearance ready. The site is now developed, so we have infrastructure ready. And in fact, some of the utilities or some of the waste treatment facilities can even support one more MPP relatively easily. So I think with all that, you know, we can get give more confidence to customer. Because if you look at last one and a half year, like, you know, almost two years after we did the acquisition in Baroda, we were already working at full utilization levels. So if I had to go to some customers and they say, okay, do this project, but then where's the capacity or when the capacity is coming? So now that we have a unit, I think we can approach to wider range of customers, innovative customers. And over the next one or two years, you know, get let get get that like, get them to the site, get the site approved, and then start new projects. So that will basically build the pipeline beyond f I twenty three f I twenty four for our growth with the new projects which we get from them. Thank you. The next question is from the line of Manish Gupta from Solidarity. Please go ahead. Doctor. Haril, would it be possible for the company to share the gross margin for the organic and the lithium business separately if it is, you know, not confidential? So, Manish, sir, basically, you know, at present, we have not done it. And, again, in lithium, we have very few customers. So that's why if we start breaking them down, sometimes we can have challenges. So at present I mean, we will discuss this internally, and we will take your suggestion. But at present, our policy is not to disclose that. But let me discuss internally and, see if we would like to do that going forward. Okay. My next question, sir, was that you mentioned that by FY 2024, you expect your Advanced Intermediate business to be 25 to 40%. And you also the earlier participant also alluded to your earlier guidance of custom synthesis being about 20% of the business on a base of about INR $6.50 crores by fiscal year twenty twenty four. So the gross margin band, which was essentially about 38% to 42%, say, two or three years down the line, what would that gross margin band be if your broad guidance is achieved? So, Manishar, I think here, one of the questions which I'm still answering because when I look at the pipeline, let's say, even advanced intermediates as well as CSM sorry, as well as the CSM molecules, I'm not seeing one particular trend. So there are some where there is one of the raw material, which is very high valued, especially if we are going to n minus two, where I am building the molecule from up. And when I'm going at n minus three or n minus four, I'm combining it with another higher value RM. So that's the reason why I'm hesitating to give this is as we know more clearly what which molecules and which projects will be, I'll be having a better idea of that. So that's why I kind of hazard giving a number. So as a rule, yes, there, the processing cost is going to be higher, and the raw material cost will be lower. So it should improve. To what level will depend upon, you know, like, from a project to project, it keeps varying. So that's why I I am requesting a little bit more time to kind of give a more long term answer. But what we see today, at least for this year, what as I mentioned, we expect it to be in the range of 42 plus minus, you know, 2% as opposed to, you know, 38 plus minus to what we used to be before. I have 40 plus minus to what we used to be before. Okay. Yes. Third question is that, you know, we we are on the cusp of a fairly high growth trajectory right now. How do you think about your I would imagine there would be a little bit of a talent issue also right now in Specialty Chemical. So how so my question was that if, for example, by FY 2024, we are looking at INR $6.50 crores to INR $6.75 crores revenue, have we hired all the talent we need to get to that? Or that will be a continuous process? Have we had all the talent that you require? So I think the answer would be at least we are fairly happy with the team which you assembled in last one and a half years to two years, where at least each functional head that we have is really, you know, in so we also had most of them already joined and with us between, let's say, six months to one and a half years. And I'm fairly confident that we already have that team. And, yes, below then below the functional head, we will keep needing more people as, you know, volumes increase to kind of support volume. But I think from a management point of view, we have the team ready. We will have more operational people join over a period of time. And I think they should see us for at least up to f I twenty four, you know, which we are good. Of course, you know, it will be a continuous process, and we will constantly be looking for new talent. Because by the time we are in f y twenty four, we should be looking at f y twenty five and '26 and getting ready for that. Okay. Thank you. Thank you. The next question is from the line of Bhavan Shah from ICSA Securities. Please go ahead. Yeah. Thanks for the opportunity, sir. So I have a question on the custom synthesis business only. So you mentioned that we are already working I mean, supplying molecules to around 10 odd customers presently. And if I look at the customs and business revenue right now, which is roughly 30 odd 40 odd crore on annual basis, And also for molecule size comes very low, and I understand that you already mentioned that we are working on n minus three, minus four molecule. So that size is smaller. But if I go if I would like to understand based on the end user industry demand or the end user only product size. So how is the product size there, and how is that end that product going? If you can share thoughts on that. Yeah. So thank you, Don. I think, you know, see, we have to understand that the CSM business as a whole started about three, three and a half year ago, where you can see even in our DRHP, there was a very small contribution of about point three, like, 30 in the first year in which we kind of started this. So, you know, there are some molecules when we started. We were very small, and these were mostly my existing bromine derivative customers asking me to do, you know, something little bit which they were doing, and they said, can you do this for us? And we also wanted to kind of build confidence. So some of these molecules, yes, I agree, are lower value. And, you know, sometimes they don't repeat every year also. But at the same time, that basically gave other customers confidence to give us more challenging molecule. So we continue to do that. You know, whether you call it CSM or whether you call it advanced intermediate, it's basically one thing. Only with the restriction that, you know, we can can't sell it to anybody else that particular molecule. As we say, like, as an example, the long term agreement which we've signed, we said the revenue remains between INR 30 crores to 50 crores per annum on the lower side and can be higher in given years. So I think our hope is that once the hedge is set up and once we are able to work more with our customers and show our capabilities in the hedge, in next two to three years, we will have more customers who will have contribution, you know, ranging from, let's say, 15 crore or 20 crore per molecule going up to, let's say, 50 crore or, you know, the target would be to even do higher. So, again, you know, our normal standard preference is if I were to say 10% to 15% as a highest kind of revenue contribution from a single molecule, what Neogen thumb rule is, at 650 crore, that range comes to 60 crore to hundred crore. So that's the range we would like to be. And again, when you do contract and that too, if there is a multiyear contract, we can even derive some comfort and take a higher risk or dependency on a single molecule. So let's see. You know, that's the target. But again, we'll take some time for Zahe to stabilize, get this customers to see and then, you know, get into contracts like this. Right. And and if I would like to understand based on, you know, the present customer profile in the customer customer community user, Finally, and is the industry more into the agrochem and pharma, or is there any other industry also right now? And apart from that, do you foresee any molecule which can become sizable in the next three three to five years from the original business line? Yeah. So yes. I mean, it's agro, it is pharma, and it's also non agro, non pharma customers. So all three segments are part of the CSM customer pool. Yes. There are a few customers which have a good revenue potential, which can become, let's say, at least a 25 to a plus kind of molecules. And, you know, some of which are in that 60 to hundred kind of range. But, you know, we have to wait our time out. So the challenge with the CSM business is because some some of these molecules are very new, and also the customer decision and approval take time. So we have to be patient on that. Right. And you also mentioned that we are negotiating with 10 new customers for this custom synthesis. So here also the product market remains the same, or this will be a new newer model for new new customers? So when I mentioned, you know, like, molecules, 25 core plus and between 60 to hundred, they also include this new customer. So I was just talking as a whole, okay, some of the existing ones as well as some of the new customers with whom we are working just to kind of clarify. And, yeah, when when we say negotiating, we are not negotiating. This is a process where, you know, you demonstrate something at one stage. As I mentioned earlier, something we've got only a process of 50 grams. So, you know, then we do a kg level, then we do a hundred kg level, then we do few metrics and level. And each one, you know, we have to do, we have to show it to customer, then customer checks at his end, makes a decision, then it goes further. And, you know, some of them may drop at that intermediate stage also. I mean, it does happen. It's not uncommon that that happens. So it's not a negotiation, but these are the customers with whom we are working through that process. Okay. Okay. And my last question is on the revenue part. So I think you earlier mentioned also that these two new contracts, I mean, which can contribute up to $62.80 crores for the initial cost here. And, you know, based on our quarterly run rate and, you know, this will lower sales impact also. Plus your phase two will also come earlier than the expected line. So, I mean, our $4.50 crore guidance do you foresee that is very conservative for this current year, and we can overachieve this $4.50 crore guidance? Yeah. I'll be happy if I can. But, you know, we are already let's say, if I were to look at the INR 85 crore kind of what we have been doing, more or less, if you look at my three to four quarters, it's been INR 85 crore. So we are at INR $3.40 odd crores per annum, INR $3.40 crores, 3 50. We are already expecting a 33% jump. And I think, again, in Q2 also, not all reactors are coming online, etcetera. There is customer approvals involved where sometimes we have to make get approved, especially on the pharma side of things. So I think $4.50 is a decent target. If, you know, I'm if if we are able to overachieve, I think, the team will do really a good job. Also, you know, there are still restrictions related to COVID even though, like, okay, operations have streamlined, but there are many things which are still not happening. We are hoping in November, December, we heard some of the international exhibitions are going to start so we can have more closer interaction with our customers and, you know, the visa restrictions and things like that. So I think April is still in my mind, you know, quite decently good target. Let's stay with it for a while, and then we see what happens further. Sure, sir. Thank you so much, sir. Thank you. The next question is from the line of Shanti Patel from Shanti Patel Investment Advisors. Please go ahead. Sir, I just wanted to know the first five five big data customers, and what is the concentration of our sales to them? Sir, I have a top 10 number readily available. Okay. That will do. Yeah. So, generally, the top 10 customers normally as a whole contribute to about 40 to 55% range of the top 10 customers. And I think in this quarter also, it was more or less in the same line. Will you be able to name few of them? I'm sorry, sir. I mean, we have during our DRHP and post that in our investor presentation also, Some of the customers who had given us permission, their logos are mentioned. But because of confidentiality of business as well as some customer confidentiality, we are not able to, you know, name them. But, yes, I mean, if you look at our historical DRHP, disclosures as well as some names which we have given in our, PowerPoint presentation, that should give us an idea. Broadly speaking, you know, almost all the pharma companies in India are our customers. So we work with almost all bigger pharma companies in India as well as generic, you know, producers in Europe and Japan, both in pharma space and also in agro space. Including multinationals. Right? Including multinationals. Yes. And, like, in India, Engineering also, the names which we have there is, like, so that these are the main customers I have them. And Japanese company, which is in the same line of business, which you shared earlier, are the customers on the engineering space. That's all. Thank you very much. Thank you, sir. Thank you. The next question is from the line of Kartik Bhatt, an individual investor. Please go ahead. Yeah. Thanks for the opportunity. Most of my questions have been answered at the yeah. The only thing I wanted to ask is on this client concentration. So while you mentioned top 10 would be 40 to 45, do you see this figure changing over the last next one or two years given the CSM business of it is planning out and all? So I think even if we currently let's look at you know? So so our focus usually has been on top customers, which I've thought more precisely. But, yeah, let me see. I mean, if we, for example, get two or three customers again, you know, even existing CSM is quite spread out, as I answered earlier, It may increase slightly. But when it comes to CSM business, if we have a multiyear contract with them and some kind of comfort that in case if they were to not have demand, we have some comfort. So I think there, if it increases slightly, I would be okay, principally speaking. But I still feel we will be because the overall top line is also growing. So I think we will still be in that 45% to 55% range for the top 10 customers. Thank you. And gentlemen, this was the last question for today. I now hand the conference over to Doctor. Harim Khanani for closing comments. Thank you so much, all the participants, for joining the call. I hope we are able to satisfactorily respond to all your questions. It's always a pleasure to interact with you and get your queries and to answer them. If you have any more questions, please feel free to contact our Investor Relations team, CDR India, and we will address them. Thank you once again, and we look forward to connecting with all of you in the next quarter. 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